Climate: New Deal at what price?

The world has a new Climate Deal. However, the countries of the South’s hope for a concrete financing roadmap hasn’t materialized.

The Paris Agreement repeats the promise made by the wealthy countries in 2009: To strive to provide US$100 billion annually as of 2020 for climate protection and adaptation measures in developing countries. Yet the industrialized countries have successfully refused to be tied to a binding roadmap, and payments into the specially created Green Climate Fund are considerably behind target. At a meeting on the topic convened specifically by World Bank and International Monetary Fund (IMF) in Lima in early October 2015, ministers from industrialized countries promised just about US$77 billion over a five-year period.

Worse yet, instead of negotiating about mechanisms for mobilizing additional funds on a "polluter pays" basis, the focus in OECD circles is on new methods for imputing private financial flows. In the run-up to Paris, Switzerland and the USA jointly put forward a "transparent methodology", a kind of creative offsetting of financial flows, whereby over US$60 billion are already being paid per year. In reality, however, only a negligible portion of that amount has taken the form of hard cash. The bulk of these virtual sums comprise already existing private investments, repayable loans and even export risk guarantee funds, which never reach the developing countries – let alone the poorest population groups most affected by climate change.

Small wonder then, that the following COP21 negotiating round held in late October 2015 in Bonn witnessed another closing of the ranks within the G77 – including heavyweight China: the draft text of the Paris agreement, which the industrialized countries had already imagined to be done and dusted, was roundly rejected. This almost led to an uproar.

The refusal to mobilize new and additional funds for climate financing is also evident from another angle: payments made so far by OECD countries have come almost exclusively from development aid budgets. No-one is paying attention to the fact that in so doing donor countries are shooting themselves in the foot in the long term. For playing off poverty reduction against climate protection projects does not solve, but instead displaces, problems – at best.

The world community can take control of climate change, as stipulated in lush words in the Paris Deal, only by investing billions worldwide in the transition to climate-friendly technologies and low-carbon development. The lion's share of these investments will have to be raised through the targeted redirection of private investments towards relevant energy and other infrastructure projects. If this is to succeed, incentives will have to be created (and funded!), in other words, it will take new and suitable government, market-based and fiscal instruments. And this in industrialized as well as in developing countries.

In the meantime, the industrialized countries have transferred much of their carbon-intensive production to less developed third countries. It is therefore only logical for wealthy countries to invest in reduction measures in the countries where their goods are being produced and the atmosphere is being polluted. It is also in our very own interests to provide financial and technological support to emerging and developing countries at the same time, as this allows us more breathing space in the North in our own process of converting to a carbon-free energy system and economy.

Climate change adaptation: not a business case unfortunately

The gradual shift to an economy that operates without burning fossil fuels is not just plausible but, given political will, also feasible. The prerequisite is that private investments are channelled along forward-looking lines by means of suitable fiscal and steering mechanisms.

The picture is quite different when it comes to adaptation measures urgently needed by those population groups that are exposed to the ever more negative impacts of climate change. For unlike new energy projects, those measures promise no return on investment. Which company in Switzerland would invest in avalanche barriers or flood protection dams? This must clearly be funded from the public purse. And what is obvious to us applies all the more to developing countries.

What is needed therefore is an attractive business case, if we are to hope for private sector participation in adaptation measures. By UN estimates, at least another US$100-150 billion will be needed per annum for measures in developing countries to protect populations and livelihoods against the inexorable consequences of climate change. A new World Bank study forecasts that in 15 years' time, the now incipient climate change could produce an additional 100 million cases of poverty – mainly in sub-Saharan Africa and Asia. The World Bank anticipates that failed harvests will lead to a 12% food price increase in sub-Saharan Africa by 2030. Because poor households spend up to 60% of their income on food, this could lead to an almost 25% increase in extreme malnutrition in some countries. Global warming by 2-3°C could expose an additional 150 million people to the risk of malaria. The predicted worsening water shortage would affect drinking water quality, leading to more cases of diarrhoea. An additional 48,000 children could well die each year.

The countries in the North have achieved enormous prosperity through industrialization, though at the price of generating two-thirds of the greenhouse gases with which the earth can cope, at a maximum. In principle it is undisputed and has been established in the climate convention that we must shoulder this responsibility and bear the costs arising from it.

But there is much more than just the moral case to make. We must avoid any further worsening of an already precarious situation in developing countries. In addition to construction measures – for example to deal with increasing periods of drought or rising sea levels – additional investments in health and educational programmes are also needed. That would at best stabilize the situation in developing countries, but not to tackle, let alone resolve existing problems of poverty.

What is needed therefore is a mix of poverty alleviation and climate adaptation measures. There is no doubt that by consistently mainstreaming climate-related aspects in all development programmes, synergies can be generated in many cases. One example could be promoting drought-resistant rather than conventional varieties in planned agricultural projects. However, without accompanying protective measures – such as flood protection dams or coastal fortifications - hard-won progress in official development assistance (ODA) could be undermined.

Climate funding must supplement – not replace – ODA

Consequently, new funds are needed in addition to ODA. Reallocating existing budgets would be counterproductive. As the World Bank report emphasizes, ODA and climate protection should be conceptually complementary, but must not be played off against each other financially. For climate protection cannot take the place of poverty reduction – or vice versa. What good is an energy-efficient, flood-proof school without teachers? What good are modern educational materials in a school that will be submerged by floods?

To make further headway in development cooperation and protect what has been achieved from the adverse impacts of climate change, increasing funding is therefore needed on both fronts. There is no way around this realization, as creative accounting methods or pinning hopes on the private sector will be to no avail.

It is just as clear that accusing developing countries of opportunism or self-interest in calling insistently for additional funding for these additional tasks is hypocritical, given the combined challenge posed by underdevelopment and ever-accelerating climate change. On the contrary, pressured by the rich industrialized countries, most developing countries have put forward their own CO2 reduction plans. To implement them however – and this is also in the interests of the industrialized countries – they are in urgent need of the support of the global North. Continuing to deny them that support is not only cynical but also short-sighted.

In this regard, Switzerland urgently needs to rethink its position in this regard; precisely because, under the Nansen Initiative which it co-launched, it is also working for the recognition of climate refugees. Switzerland cannot credibly continue to oppose adequate public funding for climate adaptation measures in developing countries. Doing so would not only jeopardize urgently needed progress in the continuing climate debate after Paris, but in the short or longer term also its credibility as an honest and serious partner.

Demands regarding Switzerland's climate policy

js. Being one of the world's richest countries – with a commensurately large CO2 footprint – Switzerland must accept its climate responsibility. Domestically and internationally. For the footprint comprises not just domestic emissions but also the much greater amounts of "grey" as well as flight emissions. This responsibility encompasses, in particular, adequate support for the poorest countries in combating climate change.
Specifically, Switzerland must:

Improve its own climate targets: To meet the 2°C target laid down in the CO2 law, Switzerland must phase out fossil energy sources by 2050. Domestic emissions must therefore be cut by 60% by 2030.

Acknowledge responsibility and provide appropriate climate contributions: Switzerland must support climate protection and adaptation measures in developing countries through sufficient and targeted climate funding contributions, also because it has relocated its carbon-intensive production to those countries over the past decades. In the light of its international CO2 footprint and its economic strength, Switzerland fair share of contributions is about 1%. For 2016 this corresponds to 500 to 600 million francs, as of 2020, about 1 billion francs annually.

Avoid offsetting: Emission reductions abroad should not become a pretext for doing less at the domestic level. Switzerland must rid itself of the obsession with imputing successes abroad to domestic climate targets.

Raise new, additional funds based on the polluter pays principle rather than through taxes: Instead of raiding the line of credit for official development assistance, Switzerland must examine new funding mechanisms based on the polluter pays principle, which besides, also has a desirable incentive effect. The following appear feasible and promising: (1) Using the proceeds from the domestic CO2 emissions trading (a surcharge of 25 francs per tonne of CO2, for example, would generate a good 125 million francs today). (2) Introducing an international airline ticket fee (20 francs per passenger would generate over 400 million francs per year). (3) Under the planned climate and energy steering system, providing for the partial earmarking of some of the revenues (potential: a few hundred million francs). (4) Introducing a financial transaction tax (as other EU countries consider).

Decarbonize Swiss financial markets: According to a new study by the Federal Office for the Environment, the Swiss financial market holds assets in fossil energy sources and technology abroad that generate some 52 million tonnes of CO2 per year. This corresponds to the level of domestic emissions. Should the carbon bubble burst, it would jeopardize assets worth 0.5-1.1% of Switzerland's GDP. For that reason alone, Switzerland-based financial entities must be urged to withdraw their investments from projects that fuel climate change.